Andrea C. Hadisurja
NIM: 01012170113
Akun C 2017 (Monday, 7.15 A.M.)
Lecturer: Mr. Harriman Saragih
Essay Topic: Implementation of Technology in Financial Services
Thesis Question: How does the implementation of technology affect financial
services?
Financial Services
Financial service is a general term referring to the services being provided in
the finance industry in the finance market. The financial service industry holds a
crucial role regarding the economy because they are a major help in the movement
of funds from one entity to another. The entities in this industry are normally involved
with management of money such as trading, lending and investing. The types of
businesses identified in the industry include banks, stock brokerages, financial
advisory or planning, securities trading, investment management or advisory and
credit card and insurance companies.
The financial services industry is the leading industry in earnings and equity
or capital with the largest market resource globally. This industry features a fastchanging aspect or element in which the market of Financial Services can create the
requirement for an entirely up to date network of solutions that are completely
dependable and can operate effectively. The financial services market features an
intense economic force; this includes being a powerful propeller of the nation’s
economy. This is due to the fact that financial services organizations are needed by
almost every company in existence in handling not only their entity but also in
carrying out the best they can to satisfy their customers, handling other business
practices, and in making day to day operations go smoothly.
Many companies today and in the past considers working with institutions
offering financial services nationwide or even worldwide as they are able to connect
with other companies, their suppliers, shareholders, employees and customers
better. Therefore, they are able to operate daily more efficiently with their finances
being professionally handled.
Technology in the Finance industry
The role of technology in general is to increase efficiency in day-to-day
activities. Similarly, technology in the business industry has also helped companies
or businesses to minimize cost and maximize their output and profit. Due to the
improvement of technology, businesses are able to make more environmental and
customer friendly decisions, which increases customer satisfaction. In the recent
decade, technology has played a crucial role in the business industry. Efficiency and
effectiveness have greatly increased as companies started switching to more
technology-reliant methods. Innovations such as high-tech machineries, artificial
intelligence, and digital marketing emerged in the 21st century and almost every
business in the world today have access to and or using at least one form of
technology in their everyday operation. Technology has given businesses today an
increased efficiency in dealing with problems within the business; in other words they
are able to come up with faster methods to solve their problems. Predictive data
analytic tools are available to help businesses detect and anticipate problems even
before they happen, giving them an opportunity to form a plan and act as efficiently
as they can when the problem then arises.
Technology also provided easier and faster ways for businesses to reach out
and connect with their customers. Technology is able to help businesses provide
better service and satisfaction for their customers. With a single click, they are able
to send orders to suppliers or a response to their customers. Employee training and
selection for workforce became more efficient because online training and can now
be conducted, including online interviews and education programs for specialized
employee degrees. Other examples that can be included are videoconferences or
teleconferences for remote interviews, virtual classes and online classes.
The financial service industry uses technology as much as the business
industry does – if not more, as they are also a form of industry in business but
dealing more with currencies and money. The financial service industry has a direct
link or connection to the nationwide or even the worldwide economy, therefore they
must ensure their day-to-day operations to be as effective as possible as one
mistake may be crucial. The industry requires extreme accuracy since a slight error
or a slight mistake in currency and money can be a great cost to the nation.
Technology in finance is known as FinTech – or Financial Technolgy. The online
market is developing vastly, and it is expected that in the future people will make
more remote payment transfers than in person.
FinTech defines the disruptive technology that entered the financial service
sector. People believe that technology is disruptive in this industry; mainly because
of the way it was able to change the way we manage money. Financial activity is
significantly transformed, from the way wealth is managed and payments are made.
In some cases, technological advancements may cause the inverse of our
expectation. Technology has helped to make everything move in a faster pace and
more effectively, increasing the efficiency in the business world, but it is normal to
expect a phenomenon such as cybercrime since everything exposed in the Internet
is hackable and prone to it no matter now protected they are.
Cryptocurrency: Digital Cash
Cryptocurrency is a secure form of digital money, which is mainly and more
commonly than not anonymous. The word ‘cryptocurrency’ is derived from
‘cryptography’, referring to the writing and solving of codes that are converted from
information, making them impossible to crack. Cryptography is not only uncrackable,
but it also allows transfers and purchases to be untraceable. Cryptocurrency is highly
reliant and correlated to the Internet, which makes use of this cryptography.
Cryptocurrency was created in the Second World War, where a more dependable or
secure communication was required in order to exchange secret and confidential
information. The concept was then developed as the era of modern technology
emerges, where it was combined with information technology, computer science and
mathematics to create a safe online platform where information, communication and
money could flow and be exchanged.
The earliest form of Cryptocurrency was found in 2009 by an alias known as
Satoshi Nakamoto, called Bitcoin. One main characteristic of Bitcoin, is that
transactions can be done directly person-to-person without any middle men required.
Bitcoin is powered by the Blockchain technology, and it decentralized, meaning that it
is not specifically linked to any governmental party. Without any links to an authority
from the government, Bitcoin has no links to a bank or financial ministry as well. Due
to this, Bitcoin can be sent to anyone in any place, at any time of the day, mostly for
free without boundaries. Because of their anonymity, Cryptocurrency has been
widely known as the center of money laundering and tax evasion due to its nature of
being untraceable and uncrackable. The Cryptocurrency technology in general is not
overlooked by any governmental instituition, making it easier for illegal activities to
take place.
The existence of such technology such as Cryptocurrency has its benefits,
yet a number of drawbacks. With Cryptocurrency, two parties can easily carry out a
transaction of funds. These transactions are minimal in cost, unlike the fees that are
charged through a wire transfer through a bank. All the transactions that take place in
Bitcoin is stored in an online ledger powered by a block chain. This ensures the
safety of Bitcoin from hacker threats. This block chain method is also able to conduct
online voting and crowdfunding, which in turn is able to minimize the cost of
transactions and process payments more efficiently.
One main drawback of Cryptocurrency is that due to its virtual nature and is
not in a centralized server, a computer crash could easily wipe away all of the digital
Cryptocurrency balance. A digital copy of the transactions must be made to avoid
such situation. The price of Cryptocurrency exchange rate can change drastically
depending on the demand. It is also important to keep in mind that anything
regarding the Internet can experience cyber crime such as hacking. Although
Cryptocurrency may be safe and receive less threat from hackers, it is not entirely
immune to hacking. Although Bitcoin claims to be safe from hacker threats, it has
experienced over 40 thefts, some involving over a million dollars. However,
Cryptocurrency is still seen as a hopeful effort to a currency that does not involve a
governmental party.
The transactions done on a site like Bitcoin are irreversible; this is another
downside to Cryptocurrency. Once a transaction is made, nobody can reverse that
transaction. Since it is not linked or in authority to a third governmental party, the
bank, the nation or even Bitcoin itself can stop that transaction even when it is done
by mistake. Bitcoin accounts are not required to be linked with real-life identities
although the transactions sometimes could be traced back. This means that the
chances of error and illegal exchanges such as black market payments may be
greater since every exchange done on the site is completely anonymous. The value
we have on Cryptocurrency sites such as Bitcoin does not allow us to convert those
that we have on the site to a more liquid form such as gold. However, Cryptocurrency
is still heavily relied on because it is can be used in a fast and global manner, easily
accessed, secure and without boundaries and influence from a nation’s political
changes.
The birth of Bitcoin encouraged the emergence of other forms of
Cryptocurrency such as Ethereum, Okcoin, Ripple, Litecoin, etc. The Cryptocurrency
market evolved faster and uncontrollably. The innovation of new Cryptocurrencies
became an ongoing trend of attracting the crowd and getting left behind when a
newer and more technologically advanced one emerges. Although new competitors
came and go, Bitcoin remained to be the leader of the Cryptocurrency market. As a
new Cryptocurrency site enter the market, users quickly invests and if the fail to
adopt with the fast-changing market, they may never have their investment returned.
This may seem as an uncomfortable way of gambling and currency trading, but
people have always viewed it as a new generation of freedom in controlling how they
want their money to flow and traded.
Since it is not influenced by politics, the rise and fall of a national currency
does not affect Bitcoin, which is why people prefer to invest in them since they
consider this to be a much safer option. We are currently living in an era where
technology takes over our financial advances. Companies have adapted their ways
to suit to the new cybermarket that have been created, making their products
tradable with the new form of currency. As more and more people start to invest in
Cryptocurrency, the role that banks and financial institutions had are no longer
significant. Banks and the government are no longer able to control the coming and
going of the currency they once had control on. In relation to Cryptocurrency, the
Internet and technology age have created a new space and medium where finances
can be traded, not just in the traditional market of wire transfer and banks, creating
an entirely new economy in its own name.
Big Data Analytics: Making Better Decisions
The tern ‘Big Data’ refers to the sets of data of high volume, velocity and
variety. Big Data can be in the form of networks, files, transactions, applications,
website and social media. One characteristic of Big Data is that they are mostly
produced in real-time and at an enormous scale. The birth of the Big Data technology
and the analyzing of it have allowed business researchers, analysts and companies
themselves to be more efficient in decision-making as they are able to make their
decisions more accurate and at a faster pace. Big Data comprises a collection of
data that the business may not have access to previously, or the data could not yet
be analyzed. Big Data makes use of complex techniques to carry out a large-scale
and accurate analysis such as text and predictive analytics, machine learning,
statistics, data mining, etc. With these advance techniques, businesses are able to
explore and evaluate various data sources they previously do not have access to. A
more accurate comparison for the new gathered data and the existing data
previously collected by the firm could be conducted, therefore making decisions
faster and on target. When we obtain more information and knowledge, we become
more confident with the decisions we make. Big Data is able to hand us the important
information needed to curate the best business strategy.
In the world today, Big Data is important because it is able to change the way
information is managed and derived. The use of business information is slowly being
changed and evolving with the existence of Big Data analytics. The main users of Big
Data are industries such as banking, education, health care systems, manufacturing,
retail and the government. Each industry has one use of Big Data in common, which
is the insight that Big Data can give and the access to multiple sources of
information, making them more efficient in decision-making and minimizing cost. Big
Data is most effective not on its organic form. It is useful because of its ability to
process and analyze data, giving special insights and services. The existence of
such technology increases efficiency and encourages innovation. The information
obtained from Big Data can be easily stored with minimal cost, cheap and abundant.
An example of the use of Big Data in real life is in UPS (United Parcel
Service), an American company that specializes in package delivery. UPS places
sensors in their transporting vehicles to track their movement and whereabouts. A
company as big as UPS with motion activities going on each and every second
require such technology to ensure everything is going well and is in place. The
sensors release data, which are collected by the server. These sets of data are
collected and are used in monitoring the company’s day-to-day performance. UPS
also uses these data to reroute their drivers in order to get their packages as
effective as they could. With the help of Big Data, UPS is able to save on gallons of
gasoline, in other words they managed to minimize cost.
As the number of customers increase, organization in the financial service
industry, including banking and insurance seek to incorporate technology in every
aspect of their operation. They are working towards transforming their system to
convert to a fully data-driven approach to improve their services for better customer
response. Techniques such as analytics are as important in the financial sector as
they are in other industries. The level of services an organization has is in relation to
the number of customers it is currently serving. As the number increases, the levels
of services are also affected since there is only so much a level of service can
handle. The common process of data analysis is able to simplify the process carried
out in banks in monitoring and evaluating, this includes sorting through the huge
amount of data only containing customer’s personal and security information. Big
Data allows the development of such data to keep up with real-time customer
behavior while presenting any resources the company may need any time they need
them. Real-time evaluation is able to improve the performance and profit turnover,
providing support for the organization for further growth.
An example of a company providing Big Data services is Datameer, who
served big name such as Citi, HSBC, Barclays, etc. They claimed that in the
combination and analyzing of data in high volume such as location, information and
transaction is able to help organizations in the financial services industry to pinpoint
any inconsistency or irregularity that may lead to embezzlement. The use of Big Data
is able to reduce the risk of these embezzlements drastically and heighten security of
within and outside of the business. Based on the discussion above, it can be seen
that the use of Big Data is mainly focused on supporting customer experience,
operation optimization and employee engagement.
Although Big Data may offer great benefits to businesses, there are also
some downsides. Errors and embezzlements are detected at a faster pace with Big
Data, avoiding loss for the business. Businesses equipped with Big Data
advancements may experience advantages from a competitive standpoint. Business
strategies and tactics can be formulated faster and effectively, allowing the business
to respond to trends and changes in the market quicker. Overall, Big Data is able to
improve profit turnover and increase customer service quality. However, challenges
may emerge no matter how valuable the data could be. By getting on the Big Data
bandwagon, the company would need to transform the logistics of their firm entirely
to be suitable with the Big Data requirements. This could mean that the business
would need to exert even more finances and alter their entire strategic approach. Big
Data is also considered a cutting-edge and sophisticated analytical method, and if
used incorrectly, it could backfire to the firm itself. Companies may also be
overwhelmed by the surge of data that they now have on hand that they may not
know how to make use of the data correctly according to their company’s strategy.
Aside from that, one unsettling aspect of Big Data is privacy. Big Data may pick up
and collect data uncontrollably, which could cause disagreements from one party to
another due to its nature.
Machine Learning: The Age of Artificial Intelligence
Machine Learning can be defined as the science of having computers
respond on their own without any explicit programming We have witnessed the
outstanding outcomes that Machine Learning have produced such as self-driving
cars, practical speech recognition, effective web search and improved understanding
of the human genome. Machine Learning is very common in today’s era, we might
even have contact with a form of them without us realizing. The basic understanding
of machine learning is minimize the amount of effort exerted to as little as possible,
and getting the work done for you. There are slight differences between Machine
Learning and AI, which is short for Artificial Intelligence. Artificial Intelligence
encloses technology such as machineries and equipment being able to do jobs or
tasks that could be considered as ‘smart’, while Machine Learning is actually a form
of Artificial Intelligence application. Machine Learning takes the concept of Artificial
Intelligence basically allows machine to have the access to available data in order for
them to learn and apply the data themselves.
The year 2018 has been dubbed as the ‘biggest year for Artificial Intelligence
and Machine Learning developments in the financial service market’. This is because
we have seen how greatly this technology has become and how useful it has been to
mankind. In recent years, there has been a growing use of Artificial Intelligence and
Machine Learning in financial services. Institutions involved in financial service are
focusing on the use of Artificial Intelligence and Machine Learning in all the systems
in financial service to evaluate a range of different data from credit quality to client
interactions. With Artificial Intelligence and Machine Learning advances, financial
institutions are able to maximize the capitals that are scarcely available. Machine
Learning is also able to analyze the models in which strategies are applied and see
the reaction in the market. Artificial Intelligence and Machine Learning both can be
useful in the public and private sector. They are used mainly as the backbone for
surveillance, data quality assessment, regulatory compliance, and fraud detection
and resolution.
The application of Artificial Intelligence and Machine Learning can increase
efficiency in information processing. One accurate example can be seen in credit
decisions, financial markets, insurance contracts and customer interactions that
contribute to a more efficient financial system. By applying Artificial Intelligence and
Machine Learning, the supervisors can increase the regulatory compliance and
improve the effectiveness of the supervisors. The application of Artificial Intelligence
and Machine Learning can also aid in the connection between financial markets and
individual institutions by relating the data that are used by the institutions to that of
the unrelated data that were available. However, the emergence of new technologies
such as Artificial Intelligence and Machine Learning may upset the third party
authorities due to its nature of being highly scalable and broad in networking. This
can cause the rise of new institutions that are unclear of their own perimeter. Since
Artificial Intelligence and Machine Learning methods are non interpretable or
auditable, they could become risky when put at a large scale. When used incorrectly,
it may backfire and cause more harm than good for the company, just like the other
two forms of technologies mentioned in the financial service industry; Cryptocurrency
and Machine learning.
To avoid any unwanted response from these technologies, it is crucial that
the use of such advancements be tested prior to its use at a bigger scale to avoid
any risks that cause any losses. They have to be tested whether they breach any
privacy that may be sensitive to boundaries and how safe and protected they are to
cybercrime, or how strong their cybersecurity are. With adequate testing and
experiments regarding how the advances work, it could ensure that the applications
are secure and they will respond how they are expected to respond.
Conclusion
It is understandable why the presence of technology in the business industry,
including the financial service industry may lead to disruption. Before technology in
the business and financial industry existed, information may be harder to obtain, and
decisions may be made in a much slower pace, but the world is safer from offenses
such as cybercrime, which may be more costly than a normal bank robbery.
Technology has created a whole new economy, such as Cryptocurrency,
where cash could be digitized and branded as an entirely new currency that could be
traded and invested in by firms and business. It also became a way people orders
and pays that shows us how the business sector nowadays are developing – more
virtually than physically. Cryptocurrency became a whole new medium where
transaction and exchanges could be made in a much more simpler and quicker
process.
Technology has also affected the way data is collected and handled. With
analytical advances such as Big Data, information could be obtained far easier;
giving access to a new pool of capital that can be substantial for the firm. The data
obtained from Big Data are mostly real-time, meaning they are happening very
recently. Big Data can help the financial sector in conducting analytics that can help
avoid or resolve fraud, or even predict them before they even happen.
Lastly, one form of technology common in the financial sector is Machine
Learning. As an applied result of Artificial Intelligence, Machine Learning in a way is
also the product of Big Data. It obtains various data from various resources, giving it
access to machines and systems in order for them to learn the data and apply them
on their own will. These three methods of technological advancements may be
different. One is involved with currency, trading and the value of money, one focuses
more on the gathering and obtaining of data at a large scale and high volume, and
the last one is linked with Artificial Intelligence and smart software and innovations.
These three advancements shares common qualities, and they are improving
the quality in decision-making, customer service, and efficiency. Their aim is to help
businesses be as efficient as possible, minimizing cost and maximizing profitability.
However, they also have another aspect in common, which is prone to hacking and
cybercrime since they are all exposed to the Internet medium, meaning it may not
always be entirely safe no matter how much it claims to be. In conclusion,
technological advancements have affected the financial service sector greatly. The
industries we know today have made use of these advancements, making it almost
impossible for us to continue on without them. Technology has proven to be useful in
terms of increasing profitability and efficiency, but it may cause more harm than good
when handled incorrectly.
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